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  • Payment
  • China

China to Issue Own Digital Currency

FACTS

  • During the China Finance 40 Forum event, People's Bank of China reported their virtual currency could be considered operational after five years of research work.
  • Goals: control and stabilise the financial system while supporting the circulation and internationalisation of Yuan.
  • This cryptocurrency will be pegged with the Chinese yuan and is likely to rely on two distinct payment networks: one from the country’s central bank and one from other local commercial banks. A Blockchain should be used, as well as other technologies currently under study.
  • How it works?
    • The users will have to download a dedicated app.
    • The associated wallet will allow them to convert yuans into crypto-yuans from their phone.
  • unlike conventional cryptocurrencies with no overseeing central authority, this currency will be under full control of the Chinese government.
  • It will be made available to individual and corporate customers; no launch date has been released so far.

CHALLENGES

  • Replacing cash. The governor of People's Bank of China confirmed that this future currency might be a sensible alternative to cash: over time, it may then replace the local Yuan entirely. According to PBOC, this solution is in line with customers’ increasing use of and interest in digital services.
  • China also sees it as a means to overcome their economic dependence on dollars in a tough commercial context, and to hedge against potential economic sanctions from the US. For similar reasons, Iran and Venezuela are also working on their own state-governed cryptocurrencies.
  • A surveillance tool. China may also rely on this launch to further focus on consumer surveillance. These digital transactions will be fully traceable (unlike cash-based payments). And the government may require banks to disclose the names of credit applicants relying on this currency.

MARKET PERSPECTIVE

  • PBOC started looking into building a cryptocurrency back in 2014 to cut down the cost of typical paper-based currency circulation. After five years of development and roughly 80 patents filed, this project is eventually seeing the day.
  • The crypto-yuan also stands out as a response to Facebook’s announcement: Libra acted as a catalyst for this project, too. China isn’t the only country working on their own cryptocurrency: developments are underway in Canada, Sweden and Uruguay, for instance.